Bharath-Shumway Naive Distance-to-Default

Install and import#

bash

npm install fintech-algorithms

import { bharathShumwayNaiveDistanceToDefault } from "fintech-algorithms/credit-risk-and-default/probability-of-default/bharath-shumway-naive-distance-to-default";

Signature#

bharathShumwayNaiveDistanceToDefault(equity_value, debt_face_value, equity_volatility, prior_year_equity_return, horizon_years)

Worked example#

verified This is the worked example published in the article, replayed by the test suite on every run. The output cannot drift.

Input#

equity_value

debt_face_value

equity_volatility

0.35

prior_year_equity_return

0.08

horizon_years

Call#

bharathShumwayNaiveDistanceToDefault(equity_value, debt_face_value, equity_volatility, prior_year_equity_return, horizon_years)

Returns#

object with 7 fields: naive_firm_value, naive_debt_volatility, naive_asset_volatility, naive_distance_to_default, naive_default_probability, state, reason

{
  "naive_firm_value": 200,
  "naive_debt_volatility": 0.1375,
  "naive_asset_volatility": 0.265,
  "naive_distance_to_default": 3.62708766745,
  "naive_default_probability": 0.000143317997,
  "state": "calculated",
  "reason": "bharath-shumway-naive-approximation"
}

Other exports#

This module also exports logisticPdModel, probitPdModel, throughTheCyclePd, pointInTimePd, mertonDistanceToDefault, campbellHilscherSzilagyiDistressProbability, calculate. Every module additionally exports run as an alias of its primary function, and a meta object carrying its catalog id, domain, family, shape and article URL.